Loan EMIs to come down further; Arun Jaitley asks banks to pass RBI rate cuts to borrowers

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NEW DELHI: EMIs of home, auto and other loans are likely to come down further with finance minister Arun Jaitley on Friday saying that banks have promised greater rate cuts in the coming days and weeks. 

After discussing a host of issues like transmission of rate cuts, problems of higher bad loans and health of the economy with heads of state-owned banks, the minister told reporters that financial services secretary would look into projects held up for want of funds and exuded confidence that soon economy would move to higher growth trajectory. 

The government, Jaitley said, would also consider favourably the demand of PSU banks for more capital infusion, over and above what was earmarked in the budget for 2015-16. 

As regards the transmission of rate cuts by the Reserve Bank, the minister said the banks gave detailed presentation on how each one of them reduced their lending rates. 

“Some part of it (rate cut) have been passed on to customers, while some banks have not passed on. I feel over the next few days … some of the bankers felt that over the next few weeks, they would be in a position to work out greater cuts,” the minister said.

Some banks, Jaitley said, expressed their inability to pass on the rate cuts on account on problems with their respective balance sheets and higher rates on small savings schemes. 

However, he said that “the environment was optimistic. Since the movement in the banking sector appears to be for the better, this gives up a further hope of a greater recovery as far as economy is concerned.” 

Many banks, including the market leader SBI, had cut interest rates after RBI reduced repo (lending) rate by 0.25 per cent in its second bi-monthly monetary policy on June 2. RBI since January had reduced the repo rate by a total of 0.75 per cent in three tranches. 

On demands of PSU banks for greater capital infusion, Jaitley said there is a “merit” in their case and the government will seriously look into it. 

The final decision to this effect will be taken by the Cabinet, he said. 

Government has earmarked Rs 7,900 crore in the budget 2015-16 towards capital infusion in PSU banks. The RBI had earlier said that the amount is inadequate and needed to be enhanced. 

On projects stalled for want of funds, Jaitley said the financial services secretary will prepare a list of such projects and try to resolve the issue. 

“Both the secretary and if necessary at my level, we will be calling for a meeting of the representatives of the state governments, those projects and concerned departments, over the next few days and try to resolve the issues,” he said. 

As regards the non-performing assets (NPAs), Jaitley said the situation has improved in the January-March quarter, but it is important to watch the developments over the next 2-3 quarters before reaching any conclusion. 

“In quarter ending March 2015, NPAs had come down from 5.64 per cent to 5.2 per cent. One quarter does not indicate a pattern. So I would wait for some more time before realising what the pattern is. Banks are themselves of the assessment that it would take them 2-3 quarters to reach a somewhat more greater comfort level,” he said. 

The minister also expressed the confidence that NPA situation would improve with greater spending thrust of the government and further pick up in the economy. 

Observing that the economy is recovering from the serious challenges it has faced in past few years, Jaitley said, “We can take some satisfaction of the fact that even though international agencies are rating us as perhaps the fastest growing among emerging economies, but our own level of ambition is higher”. 

He said the basic fiscal data looks good and the economy is on a roadmap for much higher growth. 

“Government, in terms of policy initiatives, in terms of expediting the execution of stalled projects, will continue to play a very important role. Government spending in infrastructure has increased,” Jaitley said. 

As regards NPAs, Jaitley said banks are themselves making an effort to reduce their bad loans. 

“We did ask each of the banks which has higher NPA levels to explain the reasons and those groups on account of which defaults were higher. Over the next few months, this is something which the government is going to seriously look at,” he said. 

Jaitley also said although retail credit has picked up, but corporate credit is still to pick up. 

As regards rainfall, Jaitley said: “we are keeping our fingers crossed as far as the monsoon is concerned. We are in the midst of monsoon. “I have informed the bankers with the revenue position becoming comfortable, there will be much greater investment in agriculture, so that rural demand picks up”. 

Two social sector security schemes — Jan Suraksha Bima and Jeevan Jyoti Bima — Jaitley said 10.17 crore policies have been sold in a month’s time. 

“The initial participation of private sector banks in these schemes had not been as much as public sector banks. But today seeing the response, the private sector banks have said they are also receiving interesting queries and they are also going to participate in a big way,” Jaitley said. 

The broad issues which were discussed in today’s meeting include the state of the credit growth, education and housing loans, roadmap for implementation to MUDRA Bank.

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